In 1987, Herman Moore Company completed the construction of a building at a cost
ID: 2474478 • Letter: I
Question
In 1987, Herman Moore Company completed the construction of a building at a cost of $3,020,000 and first occupied it in January 1988. It was estimated that the building will have a useful life of 40 years and a salvage value of $90,600 at the end of that time. Early in 1998, an addition to the building was constructed at a cost of $755,000. At that time, it was estimated that the remaining life of the building would be, as originally estimated, an additional 30 years, and that the addition would have a life of 30 years and a salvage value of $30,200. In 2016, it is determined that the probable life of the building and addition will extend to the end of 2047, or 20 years beyond the original estimate. Using the straight-line method, compute the annual depreciation that would have been charged from 1988 through 1997.
Explanation / Answer
Annual depreciation that would have been charged from 1988 through 1997 = (Cost-Salvage Value)/Useful Life
Annual depreciation that would have been charged from 1988 through 1997 = (3020000-90600)/40
Annual depreciation that would have been charged from 1988 through 1997 = $ 73,235
Note : In future if there is change in any estimate than it would be prospective effect and not retrospective effect